Innovative Finance Facility for Climate in Asia and the Pacific

(Limited Text - Ministerial Extracts only)

Tuesday 15th October 2024 Written Statements

[The Minister for Development (Anneliese Dodds)]

It is normal practice, when a Government Department proposes to undertake a contingent liability in excess of £300,000 for which there is no specific statutory authority, for the Minister concerned to present a departmental minute to Parliament giving particulars of the liability created and explaining the circumstances, and to refrain from incurring the liability until 14 parliamentary sitting days after the issue of the statement, except in cases of special urgency.

I have today laid a departmental minute describing a new liability, the innovative finance facility for climate in Asia and the Pacific (IFCAP), which the Foreign, Commonwealth and Development Office (FCDO) is undertaking to unlock additional climate finance in Asia and the Pacific. The liability is a guarantee of $280 million (£210 million) to the Asian Development Bank’s (ADB) IFCAP guarantee facility. The guarantee will have no up-front cost to the UK. The length of this liability is 25 years. A copy of the departmental minute to Parliament has been placed in the Library of the House.

I have separately notified the Chairs of the Public Accounts Committee, the Foreign Affairs Committee and the International Development Committee of the UK’s intention to undertake this liability.

There is huge demand for finance, especially for climate transitions, in Asia. The ADB has pledged to become the “climate bank of Asia” and, in line with UK asks, has announced an ambition to commit $100 billion at COP26 to climate finance projects between 2019 and 2030. This will require a doubling of its climate finance commitments in the second half of this decade compared to 2019 to 2023.

IFCAP is a mechanism developed by the ADB that will support this ambition. Through IFCAP, the UK and other development partners will provide guarantees to the ADB. Together, this will unlock up to $11 billion of new affordable climate finance from the ADB to middle-income countries in Asia and the Pacific—of which $1.2 billion is directly as a result of the proposed UK guarantee. The additional climate finance unlocked by IFCAP will help to mitigate carbon emissions in some of the highest polluting countries globally, and to support resilience to natural disasters in the most climate-vulnerable populations.

The UK guarantee would pay out through the ODA budget, up to a limit, the value of any missed repayment within six months if there were to be a default to the ADB by a country in the portfolio of loans guaranteed under IFCAP. The maximum total payout would be $280 million (£210 million), and the annual estimated payout for IFCAP is £6 million per year over the 25-year lifetime of the guarantee. The guarantee provides powerful credit relief to the ADB, allowing them to increase climate finance by up to $4.50 for every $1 guaranteed through IFCAP.

The impact of the guarantee on FCDO’s risk exposure has been scrutinized and approved by the FCDO accounting officer. FCDO officials have worked with the Government Actuary’s Department to model the risk of the guarantee. In the event that the guarantee is called, FCDO will have sufficient time to make the necessary budgetary arrangement to fulfil the requirements of the guarantee. Authority for any expenditure required will be sought through the normal supply procedure.

If any Member has questions, they should please not hesitate to get in touch.

[HCWS137]